Insurers to pay back $120 million after selling inappropriate ‘add-on’ insurance in car yards

AUSTRALIA’S insurers are set to pay back about $120m to customers due to a series of scandals in the sector including inappropriate ‘add-on’ insurance sold in car yards, the royal commission has heard.

AUSTRALIA’S insurers are set to pay back about $120m to customers due to a series of scandals in the sector including inappropriate ‘add-on’ insurance sold in car yards, the finance royal commission has heard.

The news came as it was revealed loopholes in consumer law are stopping the Australian Securities and Investments Commission cracking down on insurers who are dragging out payments to customers.

The royal commission will this week ask whether the corporate cop needs more powers to police the nation’s insurers as the lid is blown on a number of scandals.

BANKING ROYAL COMMISSION TURNS ATTENTION TO INSURERS

SUPER FUNDS FACE A POUNDING AT ROYAL COMMISSION

NAB STUNS RIVALS, KEEPS HOME LOAN RATES ON HOLD

Counsel assisting the commission Rowena Orr QC outlined the hit list of issues this morning with life insurance first up. It will look at general insurance next week.

The commission is sitting at the federal court in Melbourne.

Insurers had already admitted to the commission a variety of misconduct.

Insurers will pay back $120 million after an ‘add-on’ insurance scandal in car yards.

Much of this centred around ‘add-on’ insurance sold in dealerships when buying a car or motorbike in which the buyer was not given a choice of whether to buy it, was not even told they were paying for the product or were not eligible when it was sold.

Ms Orr said Allianz will pay back $45.6 million to 68,000 customers for add-on insurance sold through car dealerships.

She also said IAG associated business Swann Insurance is refunding $39 million to 68,000 customers for insurance also sold through car dealerships.

Suncorp will pay back $17.2 million and QBE $15.9 million for similar car yard insurance.

Separately, Commonwealth Bank’s CommInsure paid back 30 customers $4 million for declining claims over outdated medical definitions.

Suncorp will pay back $17.2 million to customers.

Ms Orr said the commission would explore if “there is an appropriate balance between self regulation and external regulation in the insurance industry”.

She said ASIC may need more power.

“In particular, is it appropriate that the handling of insurance claims is currently largely outside of ASIC’s jurisdiction?” she asked on Monday morning.

She said the commission would examine whether the “unfair contracts terms” regime that applies to other consumer contracts be extended to insurance contracts.

The commission will also hear whether the general insurance and life insurance ‘codes of practice’ be enforceable as contractual terms as the banking ‘code of practice’ already is.

INSURERS EXACERBATING MENTAL HEALTH ISSUES

THE finance royal commission has been flooded with 8769 public submissions over the insurance industry’s treatment of Australians.

Counsel assisting the commission, Rowena Orr QC, said the public was distressed about how the giant insurers were handling claims — particularly the delays many of them faced.

There were also concerns over life insurance, such as the sale of inappropriate products.

Ms Orr said there were issues with the way the industry was treating people with mental health problems.

“Common themes in the submissions addressing mental health are consumer experiences in being denied coverage or benefit on the basis of mental health exclusions, excessive premiums being charged where mental health issues are disclosed.”

Counsel assisting the commission Rowena Orr QC.

She also said there were cases of “mental health conditions being exacerbated as a result of claims handling processes”.

She said Beyondblue had made a submission raising concerns at the problems people with a mental health issue can have in obtaining insurance for anything from travel insurance, income protection, disability insurance and life insurance.

Ms Orr said the Consumer Action Law Centre had also identified the direct sales of life insurance — through things such as call centres — as contributing to inappropriate sales.

“(Because) customers are subjected to pressure-selling and can be misled about pre-existing medical condition exclusions,” she said.

POOR PEOPLE TARGETED

THE chief risk officer of ClearView insurance acknowledged the insurer sold products to people who could not afford it.

The commission also heard claims poorer people were targeted with inferior insurance products.

Ms Orr was probing ClearView chief risk officer Gregory Martin about its Melbourne call centre which opened in 2014 and had targeted “poorer” people with insurance policies.

She said that as soon as it opened problems occurred with customers ditching policies which made the centre unprofitable.

Ms Orr said the business was targeting lower socio economic brackets.

“It was being sold to people who couldn’t afford the product,” she put to him.

Mr Martin said: “We now know that is true, yes.”

The call centre was closed in December 2015.

Ms Orr said there was an “emotional” pitch to poorer people and a “rational” approach to wealthier people.

She said ClearView charged more to poorer people for inferior products.

“The poorer people that you were telephoning were paying more money for a product of lesser value than the more affluent people you were planning to target about superior products for a cheaper price?” she asked.

Mr Martin replied: “In terms of loss ratio that’s true, but if I could qualify that, it is similar to most products in the market. If you buy a larger amount of something, you would usually get a better price.”

[e-mail]